Colorado Car Sales Practice Test 2026 - Free Car Sales Practice Questions and Study Guide

GAP insurance is specifically designed to cover the difference between the amount you owe on a vehicle and its actual cash value in the event that the vehicle is totaled or stolen. When a vehicle is involved in such situations, the standard auto insurance will typically pay only the vehicle's current market value, which can be significantly less than the amount still owed on the loan or lease. This gap can create a financial burden for the owner since they are still responsible for paying the remaining balance on the vehicle loan.

The coverage offered by GAP insurance helps to alleviate that financial strain by covering this "gap," ensuring that the car owner is not left with a debt to pay after receiving the insurance payout for the totaled vehicle. This makes GAP insurance an important consideration for those who finance or lease their vehicles, especially if they have a low down payment or if their vehicle depreciates quickly.